Menu for retirees: Steak, to hamburger, to Alpo

Backers of the White House plan to downsize future cost-of-living adjustments for federal and Social Security retirees say that it would save the taxpayers billions of dollars and more accurately reflect the rate of inflation. Many claim that the current system overstates inflation and doesn’t take into account that when prices for one item go up (like steak), people switch to a lower-cost substitute (like hamburger).

Federal-military-Social Security retirees receive cost-of-living adjustments (COLAs) each January based on the rise in living costs as measured by one of the Labor Department’s Consumer Price Indexes. The retirees received a 1.7 percent COLA last January.

Had the so-called chained CPI (favored by the White House and many economists) been used to determine the COLA it would likely have been around 1.4 percent. Not much, but over time the compounding impact could save taxpayers — and cost retirees — billions of dollars.

Many workers, and a lot of retirees, have strong feelings about changing the system used to measure inflation and determine future COLAs for retirees. Here are two opinions:

“I have seen the argument that the current CPI understates the true rate of inflation for seniors. One reason is that the typical senior spends more on things such as healthcare than the average consumer basket of goods measured by the CPI. Since healthcare costs go up by more than the average CPI, a ‘senior CPI’ would show faster increases than the traditional CPI. Moreover, seniors who are the poorest, have fewer opportunities to switch to less expensive goods than the typical consumer does, because the poor are likely already choosing the least expensive goods.

“If this is true, and sources such as The New York Times believe it to be, isn’t the appropriate question what is the impact of moving to a chained CPI instead of moving to a “senior CPI” that truly reflects inflation for seniors.” — Federal Trade Commission staffer

Hamburger to dog food? The National Active and Retired Federal Employees has developed a calculator that workers under the FERS and CSRS system could use to see what the chained CPI would do to their future benefits. Their conclusion: Retirees would definitely be in for some-belt tightening and a permanent change in diet. But one reader thinks there’s more to the story:

“The calculator is too simple. CRS and FERS employees have different benefit calculations and the FERS employees are already on a diet COLA, so this will really hurt FERS employees. I think the government is finally getting a clue that the Baby Boomer generation’s Social Security, Medicare and other benefits will really hurt the overall federal budget. We cannot grow our way out of this one or cut our way out of this generational problem. I am not sure how this will turn out but I don’t think it will be pretty.

“I hope all the FERS employees are saving and investing as much as possible.

Advertisement

“It is not a question of steak to hamburger but hamburger to beans and rice.” — Emily in Washington State